Cross-Regional Patenting: A Signal of Enhancement for Innovation Competence or Market Entry?

Article excerpt

Abstract:

* Patenting at home country or foreign countries affects firm performance. Treating cross-regional patenting as a signal of innovation enhancement and a signal for multi-market competition, we investigate the impact of cross-regional patenting on a firm's overall performance and performance in a specific foreign market (the US).

* To meet the research purposes, this research collected a wide range of primary and secondary data of 164 Taiwan's manufacturing firms in the information and communication technology (ICT) sector.

* The findings suggest that if a firm has domestic and overseas patenting simultaneously (i.e., in Taiwan and the US), this cross-regional patenting can increase a firm's overall market performance but decrease its US market performance.

* This result implies that though cross-regional patenting may send a signal of multi-market competition in one overseas market, it also sends another signal of greater innovation competence to global vendors, which leads to a better overall market performance. This research also enriches current multi-market competition research by introducing the competition in factor markets.

Innovation has become increasingly important to international marketing academics and practitioners since firms tend to operate in a larger number of markets in recent years. The ability of multinational corporations (MNCs) to coordinate geographically diversified activities including research and development (R&D) or manufacturing activities has become an important issue in international business research (Cantwell 1995; Dunning 1993). This trend of specialization offers MNCs alternatives to outsourcing some of their products to manufacturing-oriented suppliers in other countries which enjoy lower production costs. However, MNCs normally request their contracting suppliers to patent their technologies or components for the end products in the MNCs' home countries or major markets (Blind et al. 2006, Harabi 1995; Levin et al. 1987). Thus, cross- regional patenting, a signal of enhancement for innovation competence, becomes an important criterion for supplier selection by MNCs.

However, once a supplier patents its technologies or components in a MNC's major market, it means that this supplier can produce the products for all MNCs in this market, which may intensify market competition. The increasing globalization of supply chain intensifies the need for cross-regional patenting activities. Thus, MNCs should be aware of whether the cross-regional patenting of their suppliers is requested by other competitors. This implies that perceiving the signal of cross-regional patenting by suppliers becomes increasingly important for MNCs to prevent potential competition from rivals.

Earlier studies regarding international competition mainly focus on how a firm with a multinational (Ghoshal and Bartlett 1990) or a global concern (Yip 1995) competes in international markets. The international competition strategy of a MNC is to leverage the firm's position or resources in one particular market to help gain advantage in other regional markets (Kogut 1985; Yip 1995). The MNC not only enjoys competitive advantage in global economy of scale in terms of manufacturing, supply procurement, or distribution, but also cross-subsidizes its operations in a wider range of regional markets. This stream of studies treats the multiple markets where the MNC participates in as an interrelated competitive arena (Ma 1998). However, these studies do not distinguish competition between firms in the developed countries and the emerging countries. Entry mode studies, another important stream of international business literatures, emphasize how competitive advantages (e.g., proprietary technological knowledge or a brand) originating in one country (normally in a developed country) can be efficiently exploited in other countries (normally in developed and/or emerging countries) (Dunning 1998). …